Will Romney Scale Back Rate Cuts If Congress Won’t Curb Tax Breaks?

Yesterday, Kevin Hassett, an American Enterprise Institute economist and informal adviser to Mitt Romney, insisted that Romney would not raise taxes on low- and middle-income households in order to finance his promised 20 percent across-the-board rate cut. Nor would those rate cuts increase the deficit. Instead, Kevin predicted that if Congress did not trim tax preferences, Romney would scale back those rate reductions.

I think he's right.

Kevin made his remarks at a National Assn. for Business Economics debate with Jeff Liebman, an economic adviser to Barack Obama. And by doing so, Hassett tried to rebut the Democratic talking point that the Romney tax plan would inevitably result in higher taxes for the middle-class.

Kevin, however, recast that claim somewhat : “The notion that Romney is going to raise taxes on low-income people is just a lie,” he insisted, “There is no way in hell he’s going to raise taxes on people making $20,000 by $2,000 bucks.”

For the record, I do not know anyone who said he would.

When asked to describe Romney’s definition of middle-class, Kevin demurred, though Romney himself has said it is “$200,000 to $250,000 and less.”

Still, Kevin added, “If you think the base-broadeners don’t add up, if you think he can’t get to 28 percent, then the right thing that would happen, as you know, if you’re going to have a revenue-neutral reform, is that they would have a different change in rates.”

The Tax Policy Center has found that a 20 percent across-the-board rate cut along with repeal of the estate tax and the Alternative Minimum Tax would disproportionately benefit high-income households. As a result, it would be effectively impossible for Romney to cut rates as he has promised without raising taxes on middle-income households, increasing the deficit, or raising taxes on investment income (which he has vowed not to do).

Hassett called the TPC analysis “the most partisan thing to come out of a think tank in my lifetime.”

Not surprisingly, I think that assessment is way over-the-top. However, I suspect Kevin is exactly right in his prediction of which of Romney’s incompatible promises would eventually be scrapped. While other Romney advisors hint at different changes, such taxing municipal bond interest or eliminating all tax preferences for those making $100,000 or more, these seem unrealistic at best. More likely, as Kevin suggests, the rate cuts would be scaled back.

The Hassett-Liebman event was something of a preview of the upcoming debate between Romney and Obama, though the two economists likely brought more candor, substance, and passion to the topic than their principals will.